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Buying Canadian real estate: Foreign buyer FAQs

Canada flag flapping in the wind. Buying Canadian real estate

Canada continues to look like a great place to buy real estate or invest in property. Sure, the headlines in the newspapers in this country scream of bubbles bursting and market collapse but when compared with property prices in other cities throughout the world, Canada still looks like a bit of a deal (depending on where and what you buy).

But buying in a country other than your own can be intimidating. For that reason, we put together a few “frequently answered questions” (FAQs) for foreign buyers. Use these to help you navigate through the potential purchase of a Canadian condo, townhome, vacation property or house.

Q1: Who can buy real estate in Canada?

Young couple looking at homes for sale at real estate office

When it comes to buying real estate in Canada, there are no restrictions as long as you are not a wanted criminal or the funds used for the purchase can be linked to money laundering. Because of the lack of restrictions (except for PEI, but more on this in a bit), Canada has attracted a huge number of foreign real estate investors especially in the last couple of decades.

Q2: Does Canada charge a foreign buyer’s tax?

Federal Budget 2019 new rules for millennial homebuyers

No. At present, the Canadian Federal government does not charge a tax to any non-resident who purchases Canadian real estate but that does not mean there aren’t provincial or municipal taxes or exemptions that foreign buyers should know about.

For instance, the Greater Vancouver Regional District and The Golden Horseshoe Area both implemented foreign buyer’s tax in the last couple of years. These newly created taxes were in response to the high influx of foreign buyers into these real estate markets, which contributed to rising housing prices. In order to help alleviate some of the affordability issues caused by demand (which was helped by foreign buyer purchases), the provinces of British Columbia (B.C.) and Ontario implemented foreign investor taxes, first in 2016 (in B.C.) and then in the Greater Toronto Area (in 2018).

Now, any non-resident Canadian purchasing real estate in the Greater Vancouver Regional District will be subject to a 20% surtax, which is calculated based on the sale price of the home (or, in non-arm’s length transactions, on the fair value market price of the home).

If a foreign buyer were to purchase a home for $2-million CDN, that buyer would also have to pay a $400,000 CDN foreign buyer’s surtax to the Government of British Columbia.

In 2018, the B.C. government also decided to add a non-resident tax, which is applied to any property owner that does not pay provincial income tax. In 2018, this resulted in an additional fee that was 0.9% of the fair market value (FMV) of the property. This annual fee will increase in 2019 to 2% of the FMV of the property.

The province of Ontario has a similar taxation clause known as the Non-Resident Speculation Tax. This equates to 15% of the purchase price and is paid at closing and applies to all properties purchased around the Golden Horseshoe Area, which includes Toronto, Brant, Dufferin, Durham, Haldimand, Halton, Hamilton, Kawartha Lakes, Niagara, Northumberland, Peel, Peterborough, Simcoe, Waterloo, Wellington and York.

Finally, the province of Prince Edward Island has had non-resident restrictions for years. These restrictions apply to foreign buyers, as well as Canadians living outside of PEI and it limits these buyers to no more than five acres of land or 165 feet of shoreline.

Q3: Can I buy real estate using a trust or a corporation?

buy real estate using a corporation

Yes, you can, but be very mindful that there are new reporting requirements that you will need to comply with when it comes to filing with the Canada Revenue Agency.

Starting in the 2021 tax year, property owners, investors and members of a legal counsel will have to comply with new disclosure rules and tax forms that have been created to help the fight against tax evasion, tax avoidance, money laundering and other criminal activities. These new disclosure rules directly impact trusts and corporations as the owners of these legal structures will no longer be allowed to shelter their identities.

Q4: Can I get a mortgage in Canada?

Can I get a mortgage in Canada?

Yes, you can just don’t be surprised if you’re asked for a much larger down payment. Most Canadian banks will provide mortgage financing to foreign buyers but require a much higher deposit or down payment on the property — typically 35% to 50% of the purchase price. In addition to a large down payment, the lender may charge you a higher mortgage rate. 

To get a mortgage in Canada you will have to provide financial information that shows what debts you currently owe, your income and the source of that income as well as your net worth. You will also have to provide a paper trail that shows where the money came from that you used to purchase the Canadian property.

The bottom line, if you want to invest in Canada, you must do your homework. But by doing a bit of legwork upfront you can save yourself a lot of surprises and some unpleasant and unexpected costs.

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